FCC Denies E-Rate Appeal in Scorching Order

On April 15, after a multi-year investigation arising from events in 2004-2008, the Chief of the Telecommunications Access Policy Division (TAPD) of the FCC’s Wireline Competition Bureau issued an Order denying appeals by an E-rate service provider and four Massachusetts school districts of a USAC decision that found numerous flagrant violations of the E-rate rules in the provider’s dealings with the schools. These included violations of the program’s competitive bidding and non-discount share rules. The Order found that the provider, Achieve Telecom Network, “devised a scheme to pass through, control, and direct the disbursement of funds . . . to cover the Schools’ non-discount share of the costs of Achieve’s services, in violation of the E-rate program rules,” and that “as a result of this scheme, Achieve essentially provided ‘free services’ to the Schools.”

Specifically, the Order found that Achieve unlawfully funded the schools’ co-payments for E-rate services by creating and controlling a foundation that proceeded to funnel grants through intermediaries to the schools for the non-discounted portion of the cost of supported services , violating the rule barring E-rate recipients from accepting direct or indirect payments from vendors for such unfunded costs. The E-rate rules permit applicants to use grants to pay for their non-discount share, but the grants may not come from the service provider or any entity that is not independent of the provider. In this case, the Bureau found that Achieve’s foundation and intermediaries directed grants to Achieve’s E-rate clients—and only those clients– for the purpose of paying the non-discount portions of their costs, even to the extent of drafting the grant letters and controlling their timing. The scheme also violated the competitive bidding rules, the Bureau found, by giving Achieve an unfair advantage during the schools’ competitive bidding processes, because Achieve advised the schools of the grants and was the only provider that knew that the schools could thus afford their non-discount shares. Achieve further violated its obligation to collect the non-discount share from the applicant; instead, it sent invoices that included the grant offsets and directed the schools not to pay the non-discount share. Finally, the Order found that Achieve attempted to conceal its unlawful activities from USAC and the FCC.

Interestingly, the Order directed USAC to continue to pursue recovery of the disbursed E-rate funding from Achieve (totaling $2.9 million) but to discontinue recovery efforts against the schools, because the evidence overwhelmingly demonstrated that the violations were caused by Achieve’s “deception and misconduct” and there was no evidence that the schools knew of the scheme. Nevertheless, the Order “encourage[s] applicants to remain vigilant with respect to identifying unlawful schemes and to extricate themselves immediately in instances where they could be implicated in rule violations that result in the improper disbursement of funds.”

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